An appellate court in Washington has ruled that the term “suit” in commercial general liability (“CGL”) insurance policies was ambiguous in the context of a duty to defend “any suit” when an owner of contaminated property faced strict liability under the Model Toxics Control Act (“MTCA”), Chapter 70.105D RCW. The appellate court also decided that such strict liability may trigger the duty to defend under CGL insurance policies even if no government agency has taken or overtly threatened formal legal action – at least where a government agency has communicated an explicit or implicit threat of immediate and severe consequences by reason of the contamination.

1. The Insurance Coverage Law Information Center
The following article is from National Underwriter’s latest online resource,
FC&S Legal: The Insurance Coverage Law Information Center.
DUTY TO DEFEND TRIGGERED WHERE GOVERNMENT COMMUNICATES
“EXPLICIT OR IMPLICIT THREAT” OF CONSEQUENCES BY REASON OF
CONTAMINATION, WASHINGTON APPEALS COURT RULES
June 5, 2014 Steven A. Meyerowitz, Esq., Director, FC&S Legal
An appellate court in Washington has ruled that the term “suit” in commercial general liability (“CGL”) insurance policies
was ambiguous in the context of a duty to defend “any suit” when an owner of contaminated property faced strict liability
under the Model Toxics Control Act (“MTCA”), Chapter 70.105D RCW. The appellate court also decided that such strict
liability may trigger the duty to defend under CGL insurance policies even if no government agency has taken or overtly
threatened formal legal action – at least where a government agency has communicated an explicit or implicit threat of
immediate and severe consequences by reason of the contamination.
The Case
Gull Industries Inc. notified the Washington Department of Ecology (“DOE”) that there had been a release of petroleum
product at a gas station Gull owned in Sedro-Woolley, Washington. The DOE sent Gull a letter acknowledging Gull’s
notice of the suspected contamination.
Thereafter, Gull tendered its claims for defense and indemnification for the costs of the cleanup at the station to
Transamerica Insurance Group (“TIG”); TIG did not accept Gull’s tender. Gull also tendered its claims as an additional
insured under a policy issued by State Farm Fire and Casualty Company; State Farm did not accept Gull’s tender.
Gull then sued TIG, State Farm, and five other insurers. State Farm moved for partial summary judgment, arguing, in part,
that it had no duty to defend. TIG joined State Farm’s motion on that issue. Gull opposed the motion, arguing that the
duty to defend was triggered because it faced strict liability for environmental cleanup costs under the MTCA.
The trial court granted State Farm and TIG’s motion, concluding they had no duty to defend Gull.
Gull appealed.
The Policies
The State Farm policies stated:
This Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as
damages because of bodily injury or property damage, arising out of service station operations; and this Company shall
have the right and the duty to defend any suit against the Insured seeking damages payable under the terms of this
policy, even if any of the allegations of the suit are groundless, false or fraudulent; but this Company may make such
investigation and settlement of any claim or suit as it deems expedient.
The TIG policies stated:
The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as
damages because of bodily injury or property damage to which this insurance applies, caused by an occurrence. The
company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily
injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make
such investigation and settlement of any claim or suit as it deems expedient.
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2. The Appellate Court’s Decision
The appellate court affirmed.
In its decision, the appellate court ruled that the undefined term “suit” in the policies was ambiguous in the
environmental liability context and that it “may include administrative enforcement acts that are the functional
equivalent of a suit.”
The appellate court then rejected Gull’s contention that liability under the MTCA alone, without any direct enforcement
action by the DOE, was the functional equivalent of a suit for the purposes of the duty to defend. Instead, it held that an
agency action must be “adversarial or coercive in nature” in order to qualify as the functional equivalent of a “suit.”
In this case, the appellate court noted, the only communication that Gull received was a letter from the DOE
acknowledging receipt of Gull’s notice that the property was contaminated and that it intended to pursue an
independent voluntary cleanup. The appellate court said that the DOE gave notice to Gull that Gull’s report revealed the
soil and groundwater were above the MTCA “Method A Cleanup levels” and that the DOE placed the property on the
leaking underground storage tank list with an “Awaiting Cleanup” status. The appellate court added that the letter also
advised Gull to “be aware that there are requirements in state law which must be adhered to” but said that it did not
advise of any consequences that might attach to the failure to adhere to those requirements.
The appellate court then indicated that the DOE said in its letter that it had not determined that Gull was a PLP and
that it did not imply that DOE “has formally reviewed and approved of the remedial action” planned by Gull. Finally, the
appellate court said, the letter explained that Gull “may request assistance from Ecology under the Voluntary Cleanup
Program,” which was “established in response to the public’s need for Ecology to provide formal, detailed guidance to
parties conducting independent cleanups, and to more readily review cleanup actions undertaken.”
According to the appellate court, the letter “did not present an express or implied threat of immediate and severe
consequences by reason of the contamination.” Therefore, the appellate court ruled, Gull had not met its burden on
summary judgment to establish that there was the functional equivalent of a “suit” here, triggering the insurers’ duty to
defend. In other words, the appellate court concluded, “the duty to defend is triggered by the functional equivalent of a
lawsuit.”
The case is Gull Industries, Inc. v. State Farm Fire and Cas. Co., No. 69569–0–1 (Wash. Ct.App. June 2, 2014). Attorneys
involved include: Franklin Dennis Cordell, Jeffrey Iver Tilden, Susannah Christiana Carr, Gordon Tilden Thomas & Cordell
LLP, Bradley Merrill Marten, Jessica K. Ferrell, Russell Clayton Prugh, Marten Law PLLC, Seattle, WA, Steven Gary Jones,
Holland & Hart LLP, Salt Lake Cty, UT, for Appellant; Michael Simpson Rogers, Reed McClure, Carl Edward Forsberg,
Richard R. Roland, Patrick S. Brady, Forsberg & Umlauf PS, Seattle, WA, Timothy J. Fagan, Clay H. Phillips, Bethanie L.
Berube, Katie Irvine Falkenberg, Michael L. Resis, Erika Stamper, Smith Amundsen LLC, Chicago, IL, for Respondent;
Valerie Kay Rickman, Andrew Arthur Fitz, Ofc of the Aty General/ Ecology Division, Olympia, WA, for Amicus Curiae on
behalf of Wa State Department of Ecology; Gailann Y. Stargardter, Archer Norris, Walnut Creek, CA, Sara Ellen Met-
teer, Wilson Smith Cochran Dickerson, Jodi Ann McDougall, Molly Siebert Eckman, Brendan Winslow–Nason, Cozen
O’Connor, Lawrence Gottlieb, Betts Patterson Mines, P.S., Peter Jeffrey Mintzer, Chamberlin Keaster & Brockman LLP,
Jeffrey David Laveson, Carney Badley Spellman, T. Arlen Rumsey, Attorney at Law, Stephanie S. Andersen, Attorney at
Law, Patrick Evans Trompeter, Hackett, Beecher & Hart, Steven Soha, Geoffrey C. Bedell, Susannah. J. Sharp, Soha &
Lang, P.S. Seattle, WA, for Other Parties.
FC&S Legal Comment
Some courts have adopted a narrow construction of the term “suit” as used in CGL insurance policies, requiring that a
formal complaint be filed against the insured in a court of law in order to trigger the duty to defend. Under this approach,
the term “suit” is deemed unambiguous, and if no complaint has been filed, there is no “suit” and the insurer has no duty
to defend. See, e.g., Lapham-Hickey Steel Corp. v. Prot. Mut. Ins. Co., 655 N.E.2d 842 (Ill. 1995) (“suit” in an all risks policy
clearly and unambiguously refers to a court proceeding so there is no duty to defend environmental agency letters and
proposed consent decree); Patrons Oxford Mut. Ins. Co. v. Marois, 573 A.2d 16 (Me.1990) (administrative proceeding is not
a “suit”); Technicon Elecs. Corp. v. Amer. Home Assur. Co., 533 N.Y.S.2d 91 (App.Div. 1988) (in dicta states that potentially
responsible party (“PRP”) letter does not constitute a “suit”); Aetna Cas. & Sur. Co. v. Gen. Dynamics Corp., 968 F.2d 707
(8th Cir.1992) (EPA demand is not a suit for damages under Missouri law)).
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Other courts have adopted a broader construction of the term “suit” and have concluded that the issuance of a PRP
letter to an insured is the functional equivalent of a suit, triggering the duty to defend. These courts reason that given the
strict liability imposed under the environmental laws, the term “suit” is ambiguous in this context and may include
administrative actions that do not rise to the level of an actual lawsuit. See, e.g., SCSC Corp. v. Allied Mut. Ins. Co., 536
N.W.2d 305 (Minn.1995) ( “suit” includes a request for information), overruled on other grounds by Bahr v. Boise Cascade
Corp., 766 N.W.2d 910 (Minn.2009); Coakley v. Me. Bonding & Cas. Co., 618 A.2d 777 (N.H. 1992) (PRP notice and state
agency administrative order are a “suit”); C.D. Spangler Constr. Co. v. Indus. Crankshaft & Enq’q. Co., 388 S.E.2d 557
(N.C. 1990) (compliance orders were an attempt by the state to gain an end by legal process and hence were “suits”);
Avondale Indus., Inc. v. Travelers Indem. Co., 887 F.2d 1200 (2d Cir.1989) (under New York law, demand letter from
administrative agency is a “suit”); Morrisville Water & Light Dep’t v. U.S. States Fid. & Guar, Co., 775 F.Supp. 718
(D.Vt.1991) (PRP letter from the EPA is a “suit” under Vermont law)). These cases typically focus on the financial
consequences if a PRP fails to cooperate with the government cleanup effort, making a lawsuit unnecessary to
compel compliance with any cleanup orders.
Some courts have held that whether a “suit” exists depends on the coerciveness of the specific regulatory action taken
by the government. See, e.g., Hazen Paper Co. v. U.S. Fid. & Guar. Co., 555 N.E.2d 576 (Mass. 1990) (“[t]he consequences
of the receipt of the EPA letter were so substantially equivalent to the commencement of a lawsuit that a duty to defend
arose immediately”; no such duty arose as to a different agency letter because it “does not allege the occurrence of any
damage that falls within the policy coverage”); Professional Rental, Inc. v. Shelby Ins. Co., 599 N.E.2d 423 (Ohio Ct.App.
1991) (“suit” includes “substantial efforts which force the insured to take action or suffer serious consequences if the
insured fails to cooperate”); Hartford Accident & Indem. Co. v. Dana Corp., 690 N.E.2d 285 (Ind.Ct.App.1997) (“coercive
and adversarial administrative proceedings” are “suits,” but less coercive actions such as “mere notification or
investigation when no enforcement action is contemplated” are not “suits”); Ryan v. Royal Ins. Co. of Am., 916 F.2d 731
(1st Cir.1990) (potential liability alone, without any adversarial or coercive action by an administrative agency, is not a
“suit”)). These courts also conclude that the term “suit” is ambiguous.

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